BMI Pension Fund Compensation

Debate between Mark Lazarowicz and Iain McKenzie

Wednesday 17th December 2014 Westminster Hall

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Sanders.

The issue that I will address today is complex but it potentially directly affects many hundreds of people throughout the UK, including many people in the Edinburgh and Lothian area. In fact, one of my constituents is affected, and they have asked me to raise the issue in Parliament. I am glad to have this opportunity to do that, because the issue has wide implications beyond those who are directly affected by it.

The issue is complex, and I will therefore have to spend a bit of time setting out the background to it. I am sure that those hon. Members who are taking part in the debate will be familiar with the subject and its history, but many of those listening outside this place will not be so aware, so it will be helpful to set out some background.

Let me start with the history. BMI—British Midland Airways—was, as Members will know, a major UK airline. It operated from a number of UK airports, and that geographical spread across the UK is reflected in the Members who have shown a particular concern about the issue. They are from the Lothian area, from London, from Northern Ireland and from the east midlands itself, where the former headquarters of BMI was situated. I know that all of them have been in correspondence with Ministers over a considerable period.

As Members will also know, from about 2009 the airline went into a complex set of changes of ownership. Those changes were stimulated by a decision of the major shareholder and founder of the airline, Michael Bishop, who is now a Conservative peer, Lord Glendonbrook. He exercised an option that resulted in Lufthansa becoming the 100% shareholder of BMI. However, under UK pensions law, at least as applied by the Pensions Regulator at the time, that did not mean that Lufthansa took on any legal obligation to fund the BMI pension scheme.

In due course, Lufthansa decided to sell BMI. However, part of the condition of the sale that Lufthansa agreed with the International Airlines Group, of which British Airways is a major component, was that responsibility for the pension scheme should be removed from BMI. There was a solution proposed by Lufthansa initially, but it was not approved by the Pensions Regulator, for reasons that I will not dwell upon here; they are not directly relevant to the subject matter of the debate.

In any event, the outcome of all these comings and goings was that the BMI pension fund, and therefore the Pension Protection Fund, received £16 million from Lufthansa. In addition, Lufthansa provided a further £84 million to top up members’ benefits outside the PPF, even though it did not appear to have a legal obligation to do so.

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is a pleasure to serve under your chairmanship today, Mr Sanders, and I congratulate my hon. Friend on securing this debate. Does it seem to him that that move in this takeover was a calculated one to strip 80% of the pension away from those long-serving employees?

[Mark Lazarowicz]

Well, that was certainly the outcome in many cases; that was what happened to the pension scheme members. Certainly, it was clear that part of the agreement that Lufthansa reached with the companies taking over the former BMI operation was that effectively the pension scheme responsibility would not go with the airline, which is very concerning and, as I have said, has much wider implications beyond the BMI pension scheme, although I am obviously concentrating on that today.

The arrangement by Lufthansa to top up members’ benefits outside the PPF seems, on the face of it, relatively generous. However, hundreds of staff in the BMI pension scheme will lose substantial sums in pension money, and I understand from the British Air Line Pilots Association that there are now some people in the Monarch Airlines pension fund who are in similar circumstances. Hundreds will lose out. At least 30 of the BMI pensioners and 13 Monarch members will lose more than 50% of their expected scheme pension, and that is taking account of the top-up payments from Lufthansa. Her Majesty’s Revenue and Customs has decided that although those top-up payments do not in any sense compensate for the full loss of pension entitlement, they must be taxed. That decision is wrong, and addressing it is the purpose of raising this issue today.

The tax treatment is, of course, intimately bound up with issues about the PPF, which is a wider problem that the Government also need to address. I will try to tackle both the immediate and the broader issue, in so far as I can in the time available this morning.

The Government response to the concerns that have been raised by a number of members of the BMI pension fund scheme has so far been, in general terms, one of sympathy. They are basically saying, “'Well, the tax rules are the tax rules and they must be applied, and that’s really all there is to it.” However, that is not in any sense a satisfactory response—not in the slightest. Ultimately, the tax rules are what Parliament—we as MPs, and our colleagues in the Lords—decide them to be, and the Government have frequently taken action to deal with other situations where the application of the tax law has seemed unfair or inequitable in its outcome.

For example, a couple of years ago the Government decided to impose VAT on building alterations to listed buildings. However, because that change would have hit churches and other places of worship particularly hard, the Government set up a special scheme to allow grants to be paid to those bodies to pay for the costs of extra VAT. When the Government want to find a way round the rules, they can do so.

On another pensions issue, a very relevant comparison can be made with the case of Equitable Life. In that case, although it appeared that the Government had no legal obligation to pay those people whose pensions had been hit by the Equitable Life fiasco, as a result of political pressure they of course set up a fund to pay out compensation—I think it is £1.5 billion in total—to Equitable Life policyholders, which Members across the House had called for. Of course, the payments to the Equitable Life pension holders will be tax-free, because the Government passed a law to say that that would be the case. Yet the Government are trying to distinguish between the logic behind the Equitable Life scheme decision, and that behind the BMI pension fund scheme decision.

In that context, I will quote a previous Minister, who told the House, or perhaps wrote in a letter—I am not entirely certain—that:

“Following an Independent Commission report, The Equitable Life Act”—

That is, the Equitable Life Pensions Act 2010—

“came into effect in December 2010 authorising the Government to make payments to the Equitable Life Payments Scheme. The Act provides that payments under the ELPS are tax free.”

He said, or implied, that there was a contrast with the BMI case, by going on to say:

“The £84 million payment made by Lufthansa is a voluntary payment intended to compensate BMI Pension Scheme members for the reduction in pension benefits they may face due to the BMI Pension Scheme entering the Pension Protection Fund. Where the payment is made into a registered pension scheme, it is subject to the registered pensions scheme tax legislation. As such, the payments will benefit from receiving tax relief when it is made, but that relief is subject to the normal limits within the annual and lifetime allowances. The ELPS payment and the payment made by Lufthansa are therefore fundamentally different and cannot be compared in this way.”

As I have pointed out, the two cases are “fundamentally different” because the Government passed legislation to make them fundamentally different, and not because they are, in essence, fundamentally different. These are both cases in which people lost out because of circumstances beyond their control, and we have a moral duty as Parliament and as Government to respect that in the case of the BMI pension fund holders as well as in the case of the Equitable Life pension fund holders, and indeed in other cases.

Fracking

Debate between Mark Lazarowicz and Iain McKenzie

Tuesday 25th November 2014 Westminster Hall

[Mr McKenzie]

My hon. Friend makes the very good point that the implications of fracking go beyond just the environmental, and she has laid out some of other aspects.

Fracking will do little to help Britain to reduce its carbon dioxide emissions. Research from BP earlier this year suggested that, even with the increasing use of shale gas as an energy source in the future, we can still expect greenhouse gas emissions to increase by about 29% during the next two decades. Given our already poor record on emissions, it would be a mistake to prioritise the use of an energy source that will do little to help us to meet those commitments.

Most importantly, shale gas will not last for ever. We should consider diversification and a mix of energy production, as well as investing in renewables, an energy source that will not simply disappear. Instead, it will provide jobs and investment in local communities for generations to come, helping us to build a truly environmentally friendly energy policy. The potential in the sector is great, but benefits from the fracking industry mean that it could be neglected. If that is the case, the UK would be left trailing behind others in creating sustainable energy for the future.

Talk of renewables often conjures up images of endless rows of wind turbines, which are themselves questionable in terms of energy efficiency, and which ruin previously picturesque parts of our countryside. Such imagery merely reflects the lack of imagination on the subject that is being shown by both the UK and the Scottish Government. Renewable energy can be so much more than that imagery suggests, and it is vital that our environmental policies reflect that.

For example, the west coast of Scotland has more coastline than the entirety of France, and it receives some of the world’s strongest tides. It is ripe with opportunities to help Britain to become a leader in green energy. Tidal energy could provide an estimated 20% of our energy needs, and it is immensely short-sighted not to take advantage of it.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

My hon. Friend makes a very good point. I am sure he is aware of the crisis that is now affecting marine renewables in the UK, with Pelamis Wave Power, which has a turbine in my constituency, going into administration, and with difficulties affecting other tidal power firms. Would it not be much better if the Government put resources, subsidy, effort and drive into ensuring that we do not lose our lead in marine renewables, rather than put so many eggs into the basket of fracking?

Finance (No. 2) Bill

Debate between Mark Lazarowicz and Iain McKenzie

Thursday 18th April 2013 Commons Chamber

[Mr]

McKenzie: It is a pleasure to serve under your chairmanship, Sir Roger.

It is blatantly obvious that families up and down the country are paying the price of the Government’s failure to come to terms with the economy and to create growth and prosperity for all. The cost of living has never been higher. I speak as someone who brought up a family in the 1980s, and I thought that times were hard then. I am now seeing those circumstances repeated in my constituency. My constituents, especially the working families, are finding it extremely hard.

One of the indicators is the rise in unemployment, yet again, across the country. That illustrates that times are doubly hard for those who can least afford it and who are struggling to get employment. In my constituency, we have been fortunate in keeping unemployment down. Before Government Members jump to their feet saying, “We did it for Inverclyde”, however, let me advise them that they did not. The reason that we have been so successful in reducing youth unemployment is that my Labour-led council has put its money where its mouth is and continued with the future jobs fund for the past two years, to ensure that our young people have a future. It has ensured that they have employment not just for a few weeks or months, and it has gone back to the employers and the young people to ensure that their employment is sustainable for years. Now, 80% of those given employment places have remained in them for more than a year, and we are glad that that success is doing something to alleviate unemployment among young people in Inverclyde.

Unfortunately, however, there has been little impact on those who have been unemployed for more than two years, and the Government have offered them no assistance other than shipping them off to a private firm to be placed in employment somewhere for a week or two. It is clear that only Labour can guarantee those people a job with a living wage.

Prices are rising faster than wages. The Office for Budget Responsibility has confirmed that, by 2015, people will be worse off than they were in 2010. That illustrates the result of this Government’s policies. Most people in my constituency feel that, while Ministers might have read economics at university, it is they who are actually living the economics, day in, day out. The cost of living has never been higher, and that is partly due to increased food prices. I encourage any Member to go round their local supermarket and do their weekly shopping, as I do. I see less and less going into the trolley, and more and more going into the till at the end of my shopping trip. Even those families who are thrifty and who shop around and buy own-brand items are seeing a dramatic increase in their food bills. They are being pushed into using food banks, which is another indicator that times are indeed hard.

In my constituency, we have the i58 project, in which one of the local churches has been running a food bank since last September. I was staggered when I visited it at Christmas. It thought that the numbers of people being referred to it had peaked at 1,000—mine is not a large constituency, after all—but the figure has continued to increase in the new year. It is deeply regrettable that we are not seeing any reduction in those numbers. Ever more families, including working families, have been referred to food banks.

Even with the steps we have taken in my area to insulate homes to try to keep energy bills as low as possible, there have been dramatic increases in households’ energy costs. That seems to happen year in, year out. There seems to be no stopping the price rises introduced by the energy companies. These ever-increasing bills spread fear, particularly among the elderly and those on low incomes. People are struggling to pay to heat their own homes. In my area of Scotland, investment in home insulation has been in place for four or five years, yet people are still struggling to pay their energy bills.

Rents have increased recently, too. Not enough homes are being built, so increasing numbers of people are unable to find social rented accommodation. They are pushed into the private sector, which has taken full advantage by pushing up rents time and again. That, too, is having a dramatic impact, particularly on those who can least afford to pay.

We have already heard about the high fuel prices. Those who are fortunate enough still to be able to afford to run a vehicle find that the price of petrol at the pump increases year after year. A number of approaches to the Government have been needed to get them to halt the increases in prices, but we continue to ask for VAT to be removed from fuel. That has one of the biggest impacts on fuel prices, as was pointed out in an earlier intervention. It was also pointed out that we can drop VAT, on an individual basis, from fuel.

There is more evidence of hard times to be seen on the high streets, with shop after shop closing, and brand name after brand name disappearing. The shops that are replacing them are loan shops, bookmakers and pawnbrokers, which shows that those on low incomes are increasingly having to make visits—perhaps on a weekly basis—to such shops in order to bridge the gap between what they are receiving and what they are having to spend on the bare essentials.

The way to deal with the increasing costs of living is through employment. All wealth comes from employment and we must make sure there are as many jobs as possible. We must create jobs by stimulating the introduction of projects throughout the country. We welcome the large projects, of course—we had great success with the Olympic games, and in Scotland I am sure we will have great success with the Commonwealth games—but the smaller projects in and around our communities need to happen as well, to stimulate local economies and get things moving. We all know of shovel-ready projects in our areas that need to go ahead, but they are not progressing.

Last year, the Government gave additional funds to the Scottish Government for shovel-ready projects. Where that money has gone remains to be discovered, as to date only £10 million has seen the light of day in projects across Scotland.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

What my hon. Friend says highlights one of the advantages of the proposal to cut VAT. Even with the best will in the world, investment in infrastructure can take a long time to get through all the resistance, which is why even now, after up to three years of trying, we are still not seeing the full benefits of that, whereas a cut in VAT would have an immediate effect on the high street, and on construction and many other sectors of our economy. That highlights why it is so important that the VAT cut should go ahead.

[Mr McKenzie]

My hon. Friend makes a good point. I visited some of the employers in my area in the Easter recess. Time and again they told me they needed a stimulus to the local economy from a VAT cut, to get people spending and buying things. My local construction firms in particular said they needed a reduction in VAT to get people to consider going ahead with smaller projects such as house improvements, thus creating employment locally. They felt a VAT cut would serve to stimulate that local growth and get things moving; otherwise, they could see only a bleak future, if any future at all, for the construction industry. They also brought up the continuing difficulty of being closed out of local and national Government contracts. The procurement process still seems to be far too complex and to exclude the small and medium-sized businesses that could stimulate the local economy.